Wednesday, August 28, 2013

The Case-Shiller house price indexes for June were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. Note: Zillow makes a strong argument that the Case-Shiller index is currently overstating national house price appreciation.

The Case-Shiller data for June (2013 Q2) came out [yesterday] and, based on this information and the July 2013 Zillow Home Value Index (released last week), we predict that next month’s Case-Shiller data (July 2013) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]), as well as the 10-City Composite Home Price Index (NSA) increased 12.5 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from June to July will be 1.0 percent for the 20-City Composite and 1.2 percent for the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for June will not be released until Tuesday, September 24.
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As home value appreciation is beginning to moderate, the Case-Shiller indices will continue to show an inflated sense of national home value appreciation. First signs of a slowdown in monthly appreciation are present, although these slowdowns are fairly timid. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. In contrast, the ZHVI does not include foreclosure resales and shows home values for July 2013 up 6 percent from year-ago levels. We expect home value appreciation to continue to moderate through the end of 2013 and into 2014, rising 4.8 percent between July 2013 and July 2014. The main drivers of this moderation include rising mortgage rates, less investor participation – decreasing demand – and increasing for-sale inventory supply. Further details on our forecast of home values can be found here, and more on Zillow’s full July 2013 report can be found here.
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To forecast the Case-Shiller indices, we use the June Case-Shiller index level, as well as the July Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with July foreclosure resale numbers, which Zillow also publishes more than a month prior to the release of the Case-Shiller index. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices.

The following table shows the Zillow forecast for the July Case-Shiller index.

Zillow July Forecast for Case-Shiller Index

Case Shiller Composite 10

Case Shiller Composite 20

NSA

SA

NSA

SA

Case Shiller
(year ago)

July 2012

157.21

154.35

144.58

141.81

Case-Shiller
(last month)

June 2013

173.37

172.25

159.54

158.32

Zillow Forecast

YoY

12.5%

12.5%

12.5%

12.5%

MoM

2.0%

1.2%

1.9%

1.2%

Zillow Forecasts1

176.8

174.0

162.6

159.9

Current Post Bubble Low

146.46

149.62

134.07

136.88

Date of Post Bubble Low

Mar-12

Jan-12

Mar-12

Jan-12

Above Post Bubble Low

20.7%

16.3%

21.3%

16.8%

1Estimate based on Year-over-year and Month-over-month Zillow forecasts